Cigarettes, Greed and Betrayal: An Insider's Saga

Rogue employee or Big Tobacco fall guy? Les Thompson tells tales from the vortex of the Canadian smuggling scandal.

Les Thompson was a self-made man. He grew up poor in a small town in Ontario and got no further than high school. Still, he fashioned a nice career in the cigarette business, rising through the ranks at the Canadian arm of R.J. Reynolds.

In the early 1990s, he took on a big and risky assignment: helping the company gain a foothold in Canada's exploding market for contraband cigarettes. As a regional field manager for RJR-MacDonald Inc., he supplied cigarettes to U.S. distributors, who had them smuggled back into Canada across the St. Lawrence River to avoid Canadian taxes.

With Thompson's help, the company amassed more than $600 million in revenue and more than $100 million in profit from contraband sales, Canadian authorities have alleged.

Thompson's superiors rewarded him with a promotion and lavish praise. Then, some of the distributors were arrested. And they began pointing fingers at him.

He pleaded guilty to money laundering and spent two years in a U.S. prison. He became the most notorious figure in the smuggling boom that prompted Canada to rescind a steep tax increase meant to curb smoking.

An obscure unit of R.J. Reynolds pleaded guilty to a smuggling-related offense and paid $15 million in fines. But the company emerged otherwise unscathed. It portrayed Thompson as a rogue employee who had strayed from its law-abiding corporate culture by, among other things, accepting improper gifts from the distributors.

Though he was hauled off in disgrace, Thompson didn't really go away. Released from prison in January, he has emerged as a key figure in civil suits and criminal investigations into the global trade in contraband smokes. He has been cooperating with investigators from the United States and the European Union.

"I'm looking forward to going to court and telling the story under oath," he said in an interview.

Information provided by Thompson was central to a lawsuit by the Canadian government that sought to recover $1 billion in lost taxes and law enforcement costs from RJR. The case, dismissed last year by a U.S. court, is expected to be refiled in Canada.

Thompson has also told his insider's story to Canadian investigators in a probe that is expected to result in criminal charges against tobacco firms, officials and suppliers -- possibly including his former superiors at RJR-MacDonald.

Thompson, who traded a good career and the promise of a bountiful retirement for a rap sheet, said he has never stopped wondering: Why only me?

Interviewed at his home in Canada, Thompson portrayed himself not as a renegade but as an obliging cog in a wheel of corruption. There was no way a mid-level executive could fill multimillion-dollar orders for cigarettes without the approval of superiors, he said. Prosecutors on both sides of the border have said the same thing.

Representatives of R.J. Reynolds referred questions about Thompson to Japan Tobacco International, which acquired Reynolds' international business in 1999. A spokesman for Japan Tobacco, Guy Cote, said the company could not comment because of the Canadian investigation. But he cautioned against taking the word of "a convicted felon" who took kickbacks.

If Canadian authorities bring new charges against tobacco executives, Thompson could be a key witness -- a situation he would relish.

"I'm not asking anyone to pass me a handkerchief here," he said. "But it's important to me that the story doesn't end with Les Thompson."

Diverted Exports

Experts say a quarter to a third of cigarette exports worldwide winds up getting diverted from legal channels and smuggled across international boundaries. This cheats governments of tax revenue and encourages smoking by keeping supplies of cheap cigarettes on the market.

In addition, cigarettes have been used around the world as common currency for laundering profits from drug trafficking and other crimes, allegedly with the collusion of tobacco companies, according to a suit filed last month by the European Union against R.J. Reynolds. The company called the charge "absurd."

As for their purported role in cigarette smuggling, tobacco companies have vigorously denied responsibility, saying they sell their products legally and can't track them through every twist and turn of the distribution chain. At the same time, the firms have used smuggling as a powerful argument against cigarette tax hikes.

This is the scenario that played out in Canada, where the government waged war on smoking by imposing tax increases that nearly doubled the price of a pack.

In the early 1990s, cigarette exports to the United States from Canada rose more than tenfold. Americans had not suddenly developed a taste for Canadian brands. The Canadian cigarettes, exported tax-free to U.S. distributors, were smuggled back into Canada, without the baggage of more than $3 a pack in federal and provincial taxes.